Abstract: What would Friedman and Schwartz have made of the euro area crisis? The challenges that Europe faced over the past decade—as well as challenges yet to come—can best be understood and visualised through a monetary-balance of payments framework. Sadly, such thinking has atrophied alongside macroeconomics more generally in recent years. This presentation does four things: First, recalls the evolution of monetary thinking at the IMF during the formative years of the institution (the Polak model) and laments its demise following the Asia Crisis. Second, decomposes the Baltic Crises in monetary terms, as a trial run for what was yet to come in Greater Europe. Third, recalls the euro area crisis as a monetary-bop phenomenon in the spirit of Friedman and Schwartz. Finally, reflects on the implications for the future of the euro area—what institutional changes are needed for reasonable future functioning of the currency block?

Christopher Marsh was an undergraduate in economics at Cambridge University, achieved a PhD at Warwick (including a scholarship at Leuven in Belgium). In 2005, Christopher joined the IMF, mainly in the internal Policy Department. From 2012 Christopher moved back to London, working in finance since; he is currently blogging as The General Theorist (thegeneraltheorist.com) and consulting for macro hedge funds.